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Gazprom's Bid for Media Most Comes
At a Time of Internal Chaos for Firm

By

Alan Cullison Staff Reporter of The Wall Street Journal

Updated Feb. 13, 2001 12:01 a.m. ET

MOSCOW -- Rem Vyakhirev, the chief of Russian gas monopoly OAO
Gazprom
, has never been a lover of the media. His company's press office seldom answers questions, and even more rarely does Mr. Vyakhirev give interviews.

Mr. Vyakhirev has been in the news lately, however, leading Gazprom's bid to take over Media Most, which operates Russia's only nationally broadcast television station, NTV. In a full-page advertisement in this newspaper last week, Mr. Vyakhirev said Gazprom must take control of Media Most's outlets to recoup financial losses -- the media company is a large debtor, and defaulted on hundreds of millions of dollars in loans after the Russian financial crisis in 1998.

He accused the media company's managers of bad faith, and of driving the company into bankruptcy. He said Gazprom wanted to invite "the best industry expertise -- both Western and Russian -- to turn the business around without delay".

Deeper Motives

There could be other reasons Mr. Vyakhirev is trying to take over Media Most: The management of the gas company could be currying favor with the Kremlin. Media Most, controlled by the flamboyant theater-director-turned-tycoon Vladimir Gusinsky, has been a considerable irritant to President Vladimir Putin. Its prize asset, NTV, has been a frequent critic of Mr. Putin's major policy initiative, the war in Chechnya, and has run numerous exposes on Kremlin incompetence and corruption. If Gazprom does get control of NTV, it could put a muzzle on the Kremlin's last real critic in Russia.

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Mr. Vyakhirev could use some help from the Kremlin these days, because foreign investors want to fire him. When it was privatized in 1994, investors had hoped Gazprom would quickly become known as the ultimate Russian investment, a natural-resource behemoth that -- if it ever reformed its ways -- would be a supercharger for any emerging market portfolio. Instead Gazprom has been a whopping disappointment. It is the world's biggest natural-gas producer and owns reserves eight times as great as
Exxon Mobil
's, but its hulking inefficiencies, alleged asset stripping and the chaos of the Russian economy have kept investors at bay. Gazprom's market capitalization is $7 billion (7.6 billion euros), while Exxon Mobil's is roughly $296 billion.

But foreign investors control only two of the eleven seats on Gazprom's board of directors -- the government and management control five and four seats, respectively. Only the government can force any real changes at Gazprom, and for now the government appears ambivalent. At a meeting last month, Gazprom's board ordered a review of the company's transactions with a little-known gas-trading company named
Itera,
which in recent years has been allowed to buy gas and other assets from Gazprom at below-market prices, prompting suspicions that the company may be partly owned by Gazprom executives. But the Gazprom board chose their current auditor, PricewaterhouseCoopers, to carry out the audit.

Some question the objectivity of a firm that has previously signed off on Gazprom's accounts. "People wonder why, after so many years of talk about change at Gazprom, so little has changed," said Steven O'Sullivan, head of research at United Financial Group in Moscow. "They are wondering why the government isn't pushing harder."

One answer is that Gazprom's current management has proven useful to the Kremlin in quashing an important political opponent. For the past year, Media Most hasn't buckled under pressure of Russian prosecutors and police. Government agents have raided the media company at least 30 times, and arrested or interrogated top executives and journalists for various investigations. Mr. Gusinsky has fled the country, but still controls Media Most from his villa in southern Spain, where he is under house arrest and awaiting hearings on extradition back to Russia.

Legal Maneuver

Gazprom, as a substantial creditor, last month announced it succeeded where the Kremlin has failed: Gazprom Media head Alfred Kokh said the company had managed through a Moscow arbitration court to wrest control of NTV, and would move to reshuffle the company's board of directors as soon as possible. Last month, Mr. Kokh said Mr. Putin called him to his country residence to discuss the gas company's strategy. Gazprom has vowed that it won't change the editorial policy of the television station. In his letter last week Mr. Vyakhirev accused management of distracting the public with the "worn-out rhetoric of 'freedom of speech.' "

Will the government force a shake-up of Gazprom management, too, after Gazprom rids Mr. Putin of his biggest political headache? Investors don't appear to be betting on it. Foreign investors had hoped that in Gazprom's annual shareholder meeting this coming April, Mr. Vyakhirev for one would finally be ousted from the company, and be replaced with a new chief favoring financial transparency.

But as Gazprom shares linger in the doldrums, there is widespread skepticism that anything will change at the company -- even if Mr. Vyakhirev does leave. "One of the reasons that investors have been so tolerant of the slow pace of change at Gazprom is that they have assumed there would be a change in management in April," Mr. O'Sullivan said. "If that change doesn't come, then that will be a very bad sign."